Editorial: Student loan debt comes at a high price

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MetroWest Daily News, Framingham, MA

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Posted Apr. 30, 2014 at 12:30 AM

Posted Apr. 30, 2014 at 12:30 AM

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In the last year, student loan debt surged to $1.2 trillion – about double what it was just seven years ago, according to a report from the Federal Reserve Bank of New York. That’s more than credit card and auto-loan debt and second only to the amount owed on home mortgages.

U.S. Sen. Elizabeth Warren, D-Mass., is among those sounding the alarm. In the coming weeks, she plans to file a bill that would allow all student loan holders – with private or federal loans – to refinance their debt to an interest rate of 3.86 percent, which would reduce monthly payments and the long-term cost of the loans, some of which currently carry interest rates of 9 percent or more, according to Warren.

Warren’s refinancing bill is not only a good step toward making college more affordable, but it would also foster a healthier economic environment.

Student loans have become a revenue center for the federal government, which will reap $66 billion in profits from loans it granted between 2007 and 2012 alone, according to the General Accounting Office, and students and their parents are paying the price.

Interest rates on federally backed student loans for undergraduates generate profits two times higher than needed to issue and service the loans, Warren said. That jumps to about three times higher than needed for graduate student loans and even higher for federal Parent Plus loans.

As the cost of college continues to outpace inflation, it has become difficult for families to send their children to college without taking out large loans. In 2012, 71 percent of American private, public and for-profit college graduates had student loan debt averaging $29,400, according to a report from the Project on Student Debt. And one in 10 graduates owes more than $40,000. The average for Massachusetts was $28,460.

Almost 40 million people in the U.S. have student loans and that debt burden is having a negative ripple effect through the economy. According to the Fed, many people - especially those in their 20s and 30s - are putting off the purchase of a home or car in order to pay off large student loans.

About 33 percent of student loans held by people under 30 are delinquent for more than 90 days, Warren said. The amount of delinquent loans adds up to more than the delinquent balances on credit cards, according to the Fed. In fact, overall consumer debt has declined since the Great Recession, except for student loans.

By continuing on this path, we are putting our educational, economic, and democratic future in jeopardy.

As Warren has said, "Tying students to a lifetime of financial servitude as a condition of getting an education does not reflect our values."